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Prabhudas Lilladher
Bajaj Auto (Reduce)
CMP: ₹2,553.35
Target: ₹2,362
Bajaj Auto’s strategy to gain market share in the domestic motorcycle segment might have provided the company and its dealers much-needed volumes but at the cost of profitability and margins. Management expects to continue with this aggressive pricing strategy and consumer offers in the low-margin domestic M1 motorcycle segment. Given no incremental growth expected in the domestic three-wheeler market and slight disruption in the premium segment due to increase in cost on account of safety norms, margins would continue to be under pressure.
Key takeaways from the concall: Margins were impacted sequentially by lower USD realisation (at ₹68.9 v/s ₹69.4 in Q2-FY19), lower CV volumes (at 181K units v/s 213K units in Q2FY19) and unabsorbed material costs and unfavourable product mix in exports to the tune of 100 bps, 40 bps and 40 bps, respectively; Q1 FY20 export margins are expected to be higher by 1-1.5 per cent on the back of better USD realisation to come in that quarter; margins are expected to be higher by nearly 80 bps by Q1 FY20 from current Q3 FY18 levels; current inventory levels are higher at nearly six weeks; and domestic 3Ws are expected to be higher nearly 10 per cent QoQ in Q4 FY19 but lower YoY at 100K units.
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